A New Approach for Contingency Determination in a Portfolio of Construction Projects

Abstract

In this paper, a new approach for contingency determination in a portfolio of construction projects is proposed. The model proposed helps an agency find the level of confidence needed for individual projects to ensure that the portfolio budget will meet the minimum level of confidence based on available funding and the agency’s policy goals. The promise of this model is to protect a portfolio of projects against cost overrun by adjusting their original budgets. A Bayesian approach is employed to update the model on regular intervals. As more information becomes available in the future, the required adjustment in portfolio budget will be reduced, because the accuracy of estimating the contingency is improved. The proposed model is an effective tool for the agencies/owners to develop contingency budgets.